Policy for sale

  • Politics, the genesis of public policies, is the main barrier to Nepal’s economic development
- RAM C ACHARYA, Kathmandu

Sep 2, 2016-

Public policies—a system of laws, acts, regulations, courses of action, and funding priorities of the government—determine the pace of a country’s economic development. Public policies are nothing else but a creation of politics. Therefore, the root cause of the historical failure to attain economic development in Nepal is politics.

In a welfare state like Nepal, where the market and the government are supposed to blend, the role of public policies is more important than in a state under communism (only government) or laissez-faire capitalism (only market). In a welfare state, public policies should maintain a razor-thin balance between mobilising millions of economic agents in the market and correcting the market when necessary. 

For a welfare state, among the three main public policies, regulation—a set of detailed rules and guidelines to implement a country’s laws and acts—is the most important. It not only connects all economic entities—individuals, companies and businesses—with laws and acts, but also determines the efficacy of the other two policies, fiscal and monetary. In fact, these two policies can be considered a part of regulation. Hence, it is vital to get regulation right.

Rent-sharing economy

Political barriers to better public policies are staggering. First, the laws and acts may reflect the needs of special interest groups rather than those of the general public. Second, good laws and acts fall prey to regulatory capture, a situation in which the economic entities, which are supposed to be regulated, influence regulations in their favour to reap private benefits at the expense of public interest. Consequently, there are either too few regulations, allowing free rein to the economic entities, or too many, stifling competition, depending on which way the particular entities benefit. 

Third, the regulations that survive tampering are not enforced, leading to frequent regulatory negligence. Every profession and business has a strong syndicate to fight tooth and nail to discard regulations. Fourth, as most regulations are vague, they create discretionary power that is costly to the society. For example, things like income, property and land registration tax rates, which should be predetermined, are negotiable with or without payment under the table. Finally, corruption is so endemic that ordinary people cannot receive even the most basic government services without having to pay extra.

The root cause of all these distortions is that public policies are up for sale from the political parties to the highest bidders. The bidders are by no means innovators, but rentiers. They bid to grab economic rents—profits (for business) and payment (for individuals) in excess of what their earnings would have been had there been no policy favour for them through the government blocking their competitors. Economic rents are the siphoning off of resources from the public in the form of either higher pricing of goods and services, or huge indirect costs of incompetent public officers, or forceful additional payments for government services and so on. Both the buyers and sellers of public policies share these rents, which are not a creation of wealth but a transfer of it from the public. 

These rent-seekers might be powerful individuals, corporations, NGO, INGOs, labour unions, contractors, members of political parties or their sister organisations who rig the political and economic systems for their benefits—as the rest of Nepal pays the price. 

Alarming report card

There are several recent episodes that confirm policy hijacking by rentiers. The unwillingness to curb black marketeering during economic blockades, the reluctance to transfer donors’ assistance to earthquake victims, the provision of the Education Act which forbids new private schools to enter the market but allows existing ones to 

operate are examples of policies controlled by rentiers. Similarly, one cannot even imagine how much worse the already poor health sector Acts and regulations would have been without the heroic and relentless fight of Dr Govinda KC against the politically powerful by launching a fast-unto-death eight times. 

The list goes on. The Banks and Financial Institutions Acts are being made toothless by lawmakers. The Cooperative Acts that intend to stop the financial exploitation by cooperative titans are buried under the legislative wall. Transport syndicates continue to fight and triumph against any regulation to reduce the horrendous loss they have imposed. The country’s hydro potential remains untapped, subjecting its people to endless hours of load shedding. 

These are just the tip of the iceberg; there is a long history and a lengthy list. If the objective of the political parties were to improve the welfare and living standards of the citizens, they would choose policies with the prospect of attaining fast economic development. Instead, their objective seems to pursue policies that generate the highest return for them to the detriment of the public. 

This objective explains why we have the same political dramas constantly recurring across all parties. It takes longer than two weeks of conference to form a student body; it takes more than a month to decide ministers from a ruling party; several power centres coexist within a party; each party has paramilitary forces. All these happen because political position is associated 

with undue power and size of rent. These anomalies are necessary by-products of the ongoing fight for rent collection. Had the objective been raising the living standards of the citizens, none of this would have happened.

Political parties captured by vested interests promise big but deliver nothing. They thrive in contradiction: they all promise the moon to each voter, but when it comes to a simple and immediate task, they oppose each other. This is because promising big for tomorrow does not cost them a penny; rather it earns them respect as long as they can confuse the people. But cleaning even a small mess or fixing anything broken at the present time is a loss to their members. 

Inevitable change

Rents are different from economic profits. Profits would generate dynamic processes of continuous resource allocation that ensure economic development. As there is no protection from the government, the profits that accrue to a successful entrepreneur will be competed away by other profit-seeking entities, ultimately benefitting consumers in the form of lower prices. 

Therefore, the higher the economic rents in a country, the more economic hardships and stagnation it will endure. And the deeper the involvement of a political party in rent-grabbing activities, the stronger a barrier it will be to economic development.

The politically powerful will not easily give up their entitlement. However, the inspiring people of Nepal, who have been deprived of their rights by the political parties but are excited to make Nepal a strong, vibrant and just society, are the hope. 

Soon, the educated, compassionate and persevering youths, both from inside and outside the country, will make their way forward, not through a decayed political system but through a renewed sense of nationalism. Political parties should make a note that a drastic change of course is inevitable.


- Acharya is an economist 

Published: 02-09-2016 09:17

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